Monday, May 21, 2012

"percentage point" - discuss.

Here is a reader's letter:

Here is my reply:

Thanks very much for writing.

The Reserve Bank’s “0.50 percentage point rate cut” is the cut in its cash rate from 4.25% to 3.75%.

Here’s how it looks expressed in numbers: 4.25 – 0.50 = 3.75

You can see that a cut from 4.25 per cent to 3.75 per cent is a cut of 0.50 percentage points.

But, perhaps surprisingly, it is NOT a cut of 0.50 per cent.

Expressed as a per cent, a move from 4.25 to 3.75 would be much bigger: a cut of 11.1%.

If I wrote the Reserve Bank cut its cash rate 0.50 per cent I would be (hugely) wrong.

That’s why I use percentage points, a factually correct term that I until now had thought people understood.

Can you think of a better way to do it? I am open to suggestions.

Please discuss.